Witness history once again! Local time on the 12th, the euro to the dollar exchange rate intraday fell to 1 to 1 parity level, a record low since October 2002, that is, nearly 20 years. In February this year, the euro was trading at around $1.15, and since then the euro has continued its downward spiral.
According to Eurostat, less than 40 percent of the eurozone’s imports are settled in euros, while nearly 50 percent of imports, including most raw materials such as oil and gas, are settled in dollars.
With the euro falling against the dollar, imported inflationary pressures increased, further weakening the real purchasing power of European households. in June, the eurozone consumer confidence index was -23.6, a record low. Europe’s consumer demand fell, China’s foreign exports will also be under pressure.
Eurozone recession is expected to be the trigger for the recent sharp and rapid depreciation of the euro, while the economic divergence between Europe and the United States and monetary policy differences are the reason for the continued weakness of the euro.
Due to the serious impact of the Russian-Ukrainian conflict on Europe, the risk of recession in the eurozone is now far greater than that of the United States. Goldman Sachs latest said that the risk of the U.S. economy entering recession next year is 30%, while the eurozone is 40% and the United Kingdom is 45%.
According to RIA Novosti, the Nord Stream gas pipeline company said that from 7:00 p.m. Moscow time on the same day, routine maintenance work was carried out on the two lines of the Nord Stream 1 gas pipeline operated by the company, and the pipeline has now suspended gas transmission. According to institutional sources, the shortage of natural gas for winter in Europe is now a certainty. Russia’s suspension of gas deliveries will exacerbate the risk of the European economy falling into recession, which is likely to be the last straw that breaks the camel’s back. Translated with www.DeepL.com/Translator (free version)
High inflation spread to many countries around the world, and now major developed countries have entered the interest rate hike cycle. Due to the recession and sovereign debt risks, the European Central Bank is very cautious about raising interest rates, and it is expected that the ECB will probably only raise rates by 25 basis points at its meeting on July 15, which is in marked contrast to the Fed’s expectation of raising rates by more than 300 basis points during the year. Recently, the market has been heating up with expectations that the Fed will continue to raise rates aggressively this month, with the U.S. federal funds rate expected to reach a level of 3.5% in March next year. Translated with www.DeepL.com/Translator (free version)
In theory, a devaluation of the euro could stimulate exports and help cushion raw material prices that have spiked as a result of the war, especially for a major exporting country like Germany.
In fact, on the one hand, the eurozone’s external demand fell, orders decreased, while import prices rose sharply, the effect of the superposition is that since March this year, the eurozone’s trade has been in deficit. Among them, Germany in May appeared since 1991 for the first time since the trade deficit. On the other hand, for European countries that issue bonds denominated in U.S. dollars, the depreciation of the euro against the dollar means higher repayment costs, pushing up the risk of debt. Therefore, the current devaluation of the euro, for Europe is obviously more harm than good, the industry has also given the corresponding judgment. Translated with www.DeepL.com/Translator (free version)
The possible imported inflation brought by the devaluation of the euro will undoubtedly add to the pressure of high inflation in Europe, which is already under pressure.
According to June data in the Eurozone, CPI rose to 8.4% and core CPI rose to 3.9%; while the consumer confidence index was -23.6 and Germany’s consumer confidence index was a record low at -26.2. High oil and gas prices have made residents’ real purchasing power decreasing, and “consumer downgrading ” has become a helpless choice for many Europeans, and the demand for some non-essential goods may decline.
Europe is China’s second largest trading partner, analysts believe that the devaluation of the euro points to a fall in foreign demand, meaning that China’s exports to Europe are under pressure, which may affect the profit expectations and profitability of the relevant foreign trade enterprises. Even if China’s goods did not rise in price, but for European importers holding the euro, the price of Chinese goods will also indirectly rise because of the depreciation of the euro.
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